Monday, December 6, 2004

Boosting government productivity

Further to the article from Mckinsey Quarterly on Organizing for Effectiveness in the Public Sector, Mckinsey carries another article on a similar topic. Although it is not a sequel to the last one, it is similar in that it is about Boosting Government Productivity.

The article starts by proposing a way to meet the expected huge government expenditure owing to the aging population: by boosting government productivity. It mentions a study on the comparison of productivity growth in the private and public sector. You can guess the result, that the productivity growth in the public sector since 1987 lags much behind the private sector: only about 0.4% p.a. compared with 1.5%-3% in the private sector. The authors propose that: although many people think that improving productivity is synonymous with cost cutting and layoffs, the latter often lead to poorer service and thus to lower productivity. Boosting productivity can bring both cost savings and better service.

This is a very basic principle that we all know. The problem is how to put it into practice. So I am interested to know what magic touch the authors have. They propose three classical management tools.

1. Organizational redesign
A redesign that focuses on the end "customer," eliminates duplication, and streamlines processes can improve both the cost and the quality of services

2. Procurement
Improving supplier-management and purchasing operations can help organizations cut their expenditures while raising the quality of the goods and services they buy. Governments mounting such efforts usually standardize and consolidate orders, designate preferred suppliers, reward them for meeting delivery and quality targets, and collaborate with them on ways to improve production processes and reduce costs.

3. Operational redesign
Redesigning operational processes to reduce waste, eliminate unneeded effort, and correct mistakes quickly can also raise productivity to an astonishing extent. "E-government" initiatives too can radically improve service and customer satisfaction while reducing costs.

We will probably say that aren't we know about all these already. If it is so simple, why aren't everyone doing them. The authors do recognize some barriers and try to overcome them.

1. Competition is the most important missing element. Without competition, managers have little incentive to take risks on new techniques. The solution is creating competition to provide services and giving citizens the ability to choose among these alternatives. Outsourcing creates competition, e.g. allowing private-sector companies to bid on social-service contracts lets them compete with government providers.

2. Managers can be prodded to meet targets if governments budget-in expected performance improvements.

3. Making the performance of governments more transparent by publishing the results of customer satisfaction surveys, benchmarking surveys, and service-quality metrics also helps citizens to take an active role in demanding change.

4. Committed leadership, a critical mass of talent, processes that budget for productivity targets, and citizens who know that they have a stake in a better outcome and hold officials accountable for achieving it.

5. One way of building public confidence and media support and of stoking the appetite for change is to design the reform effort so that it delivers high-profile early victories.

Come to think of it, we heard about these from the Public Sector Reform several years ago. I wonder where we failed. For competitions, private sector involvements are encouraged. But we see some political forces acting against contracting-out, both on its impact on civil servant job security and exploitation of labour. Also, recently, the basic principle of privatizing public assets is challenged. For 2 and 3, the government is giving out smaller budget envelopes. For 4, do you think we have committed leadership and a critical mass of talent? If not, how can we improve on these aspects. I think we failed badly on 5, mainly because the government does not have good PR strategy and support.

Back to the EO grade, I think we haven't passed 1. Not that we do not have competition, but it seems to me that we do not even recognize that we do have competition.

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